Australian FOREX Daily Outlook 9/12/2005

MARKET SUMMARY – 09/12/05(03.00GMT)

• The Dollar fell sharply against the major currencies in overnight trade. The dollar fell on comments by European and Japanese central bank officials that suggested interest rates in those areas could rise next year. US sharemarkets eased overnight, dragged lower by General Motors and Intel. The Dow Jones closed 50pts lower while the NASDAQ was down 11pts. Crude oil prices rose above US$60 a barrel, following forecasts of a cold snap in the US Northeast over the weekend, signaling greater demand for heating oil. US data released overnight had little impact with jobless claims figures coming in at 327k versus forecasts of 317k. Looking ahead, and the data due out in the States later today includes the Uni of Michigan preliminary reading of the consumer sentiment index for December. Consumer sentiment is expected to extend November’s rebound in December. The weakness of September/October was always expected to be temporary due to the hurricanes and a December rise will confirm this. The market expects a rise to 84.0 from 81.6
  

• The Euro rose against the dollar from 1.1707 in London early to a high of 1.1847 in the New York session, before closing at 1.1820. This move was due to some hawkish comments from European Central Bank officials. ECB chief economists Issing said the ECB did not plan a series of rate hikes, after raising rates to 2.25 percent last week, but he added that the central bank stood ready to act at any time if price stability were endangered. Data released in Eurozone was also supportive for the currency with German industrial output data coming inwell above analysts expectations (actual of 1.1%, forecast 0.5%), following better then expected German factory orders figures and solid euro zone services PMI survey earlier this week.

• The Japanese yen strengthened from JPY121.01 per US dollar in London to JPY120.01 in New York, before closing at 120.30. Hawkish comments by Bank of Japan Governor Toshihiko Fukui and firm Japanese consumer sentiment data convinced traders that the dollar may have hit a near-term peak against the yen. Fukui said the chances of a Japanese monetary policy shift will increase next year, although he added that the central bank will keep interest rates near zero after that. GDP released today showed Japan‘s economy grew 0.2 percent in July-September from the previous quarter. The government revised down its initial estimate. The revised expansion in gross domestic product (GDP) for the third quarter in real price-adjusted terms compared with an initial reading for a 0.4 percent expansion and economists’ consensus forecast of a revision to 0.6 percent growth. On an annualized basis, GDP grew 1.0 percent, compared with a preliminary reading of a 1.7 percent rise and economists’ median forecast of a 2.4 percent gain.
  

• The Pound rose against the dollar from 1.7337 in London to a 1 month high of 1.7558 in New York, before closing at 1.7520. The Bank of England’s Monetary Policy Committee announced it was leaving interest rates unchanged at 4.50 pct for the fourth month running. The decision was fully expected by the market.
  

• The Aussie trader higher from 0.7460 in London to .7515 in the New York session, before closing at 0.7495. The Aussie continues to benefit from strong commodity prices in recent weeks. Yesterday employment for November rose by 28k following the previous decline of 19.8k, with gains driven by an increase in full-time employment.

TECHNICAL COMMENTARY

• Euro – 1.1810

A break of either 1.1820 high or Dec 2’s 1.1661 low is now required to initiate the next directional move with 1.1820 seen as the catalyst for extended gains towards 1.1903. On the downside 1.1661 is defined as the trigger for a move to 1.1586, the 38.2% retracement of the major 0.8227 to 1.3663 advance.

• Yen – 120.50

The correction from 121.41 came to within two pips of important support at 119.95. Only a sustained break of this area would put the case for at least one more new trend high within the developing bull trend on hold. Penetration of 120.86 (61.8% retracement of the decline from 121.41 thus far) would take the pressure off the underlying bull trend, clearing the path for a run at its 121.41 extreme and then the 121.89 reaction high from Mar 31, 2003.

• Pound – 1.7520

Analysts remain cautiouslybullish with respect to the move up from Nov 28’s 1.7048 low, that following the break of 1.7454 high and trendline resistance originating from early Sep, paves the way for1.7577. Weakness below Dec 2’s 1.7249 low would be necessary to define an interim high.

• Aussie – 0.7510

We’ve seen an abrupt sell-off from yesterday’s 0.7545 high, with extended weakness required through Monday’s 0.7450 low is required to more objectively define an interim high. Fresh upside beyond 0.7545 likely to expose 0.7572, the 61.8% retracement of the broader 0.7765 to 0.7261 decline, ahead of 0.7605, the peak from Oct 27